PeakTrader.com

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PeakTrader said...

New firms, like Walmart, strengthened the U.S. economy more than some people realize, in part, because inflation has been overstated at the height of the Information Revolution from 1982-07.

Although, real wages didn't rise much, real compensation rose substantially, but the gains were almost completely absorbed by excessive regulations in health care.

The productivity paradox

Robert Solow: "You can see the computer age everywhere but in the productivity statistics."

The paradox has been defined as the discrepancy between measures of investment in information technology and measures of output at the national level.

"Investment has gone into our 'unmeasurable sectors,' and thus its productivity effects, which are likely to be quite real, are largely invisible in the data."

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The chart below shows U.S. productivity was substantially higher in the 25 years from 1947-73 than in the 25 years from 1982-07.

The 80 million U.S. Baby-Boomers (born between 1946-64) reached "prime-age," i.e. their peak productive years of 35-54 between 1982-00, which coincides with the greatest structural bull market in U.S. history (the second most productive group is the 55-64 age group, based on education, training, and experience).

The chart also shows even lower productivity over the past four years, and low productivity over the "long-wave" bust cycle from 1973-82.

http://www.bls.gov/lpc/prodybar.htm

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Who Really Robbed the Middle Class? Maybe It Was Health Care
The Atlantic
Oct 13 2011

"Wages have fallen from 51 percent of the economy to 44 percent of the economy in the last 50 years.

Compensation...includes your health care, pension benefits, and employer contributions to Social Security, Medicare and other government programs...as a share of the economy hasn't changed more than a percentage point since 1960.

As it turns out, all those things have increased from about 4.5 percent of the economy in 1960 to about 11 percent of the economy in 2009. As a result, they have eaten into wages.

Health care and other benefit costs have more than doubled as a share of GDP since 1960. Corporate profits have not." (*Chart showed an average general decline in corporate profits as share of GDP from 1947-2010, falling from roughly 11% to 9%).

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I suspect, investment as a percentage of GDP increased, and labor earned higher returns on assets.

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So, real compensation kept up with real (domestic) growth, and the U.S. was able to consume up to $800 billion a year more than produce, since around 1980 (through trade deficits), while real assets increased substantially (e.g. reflected in household net wealth of $60 trillion).

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Juandos, I wonder how much faster a computer and printer are compared to a typewriter and copier, for example, and what about quality, e.g. being able to create charts with a computer?

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Juandos, yes, but that doesn't explain why productivity was so low in the Information Revolution.

For example, before the quick and massive creative-destruction process, mostly from 2000-02, more inputs, e.g. labor and capital, flowed into Information-Age firms (resulting in the tech bubble), although output (measured in revenues) also increased.

However, after 2002, output increased much faster than inputs. Yet, although productivity increased a little, it was still lower after 2002 than between WWII and 1973.

It seems, there should've been much higher productivity in the macroeconomy, because of the Information Revolution.

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Juandos, your implication of high-skilled labor has something to do with the productivity paradox.

It's less productive to invent and build new technology, the way productivity is measured, than to operate and maintain it.

The U.S. increasingly offshored low-skilled work and shifted resources into high-skilled work, which would slow U.S. productivity, although accelerate U.S. living standards.

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Productivity has been understated. So, inflation has been overstated.

Except for the temporary oil shock, from the global economic boom and peak oil, the U.S. economy continued to generate disinflationary or deflationary growth:

Why the Economy Is a Lot Stronger Than You Think
Feb 13th, 2006

""As we've become a more knowledge-based economy," says University of Maryland economist Charles R. Hulten, "our statistics have not shifted to capture the effects."

The BEA doesn't want to move too fast. It plans to publish supplementary accounts for R&D in the next few years, which will track R&D spending without adding it into the official GDP numbers.

Other intangibles, though, remain below the radar. "No one disagrees with this conceptually," says BEA chief Landefeld. "The problem is in the empirical measurement.""

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Juandos, one problem is how can you measure quality differences, e.g. between a cell phone and a smart phone? (the difference in price doesn't fully capture the quality difference).

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It was not only the invention of the product itself, in the Information Revolution, it was also the speed of improvements to the invention and the increase or decrease in price.

For example, how much better was a 2005 computer compared to a 1985 computer?

How much better was a 1975 typewriter compared to a 1955 typewriter?

And what were the price differences?

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The difference between U.S. real income, quality changes, and international trade from 1980 to 2012 is the difference between a 1980 Ford Pinto and a 2012 Honda Accord.

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Ed R says: "I guess we should thank President Obama for his wise pro-corporate economic policies."

Yes, you can thank Obama for raising the cost of labor, to make capital spending relatively cheaper.

So, corporations can make the existing workforce work harder with little pressure to increase wages, thanks to lots of unemployment.

I'm sure, most office workers would prefer a $2,000 raise than a new $20,000 copier. So, the worker can be 5% more productive.

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